Credit tips on how to borrow money so it benefits you

Saving up to purchase a new car or big-ticket item is not something everyone can do. Even if you’re good at saving money, you might still need to learn how to borrow money to fund your personal goals. But how do you go about doing it? Here are some tips and factors to consider when borrowing money.

How to make good borrowing decisions

1. Make sure you can afford the repayments

Before taking out a loan or using your Metrobank credit card, it's important to carefully consider your income and expenses. Will you be able to comfortably afford the monthly repayments?

Defaulting on a loan or missing credit card bills damages your credit score. It’s important that you know how to use credit cards wisely so that you can still take out future loans.

2. Compare interest rates

Another way to make good borrowing decisions is to shop for rates. There's more to consider than just the principal amount and monthly payment. One important factor is the interest rate, which is the percentage of the loan that you'll be paying in addition to the principal.

Different banks and lenders offer different rates, so it's important to shop around and compare rates before committing to a personal loan. A small difference in interest can mean thousands of extra pesos paid over the term of the loan.

3. Know the difference between secured and unsecured loans

If you want to learn how to borrow money wisely, it’s important to learn about the difference between the two most common types of loans: secured and unsecured. A secured loan is one where you put up an asset, such as your house, as collateral against the loan. This means that if you default on the loan, the bank can take your house. An unsecured loan doesn't have this risk but usually has a higher interest rate. Weigh the pros and cons of each before applying for a loan.

4. Consider the fees involved

Whether you're applying for a car loan or a home loan, it's important to be aware of all the fees that come with it. Many banks charge an application fee, which can either be at a flat rate or a percentage of the loan amount. They may also charge an early repayment fee if you pay off your loan ahead of schedule. These fees can add up quickly, so make sure to research and compare the fees that banks offer before deciding.

5. Read the fine print carefully before signing anything

It's important that you understand all of the terms and conditions of your contract. Otherwise, you may end up agreeing to something that isn't in your best interest. To make sure you fully understand everything, carefully review the loan contract before signing. You should also take the time to ask questions or clarify concerns with your lender.

6. Be honest about your financial situation

You may be tempted to stretch the truth in order to appear more financially stable and increase your chances of approval. However, this will only do you more harm than good because you might end up taking on a loan that you can’t pay off. Besides this, it is also unethical and is considered fraudulent, and can lead to legal consequences.

7. Only borrow from a reputable lender

It's only right to be cautious and to do your research before applying for an online loan. There are individuals and organizations that prey on those experiencing financial difficulty, offering seemingly helpful loans, but at exorbitant interest rates.

These scammers may use tactics like unsolicited text messages or overly friendly sales pitches to lure unsuspecting borrowers. To avoid falling victim to these unscrupulous lenders, make sure to thoroughly review loan offers before making a decision.

8. Stay on top of your repayment schedule

Finally, one of the most important loan tips to keep in mind is to exercise the right money habits and pay the loan back on time. Whenever you miss a payment, you incur higher interest and late fees.

These interest charges pile up over time, adding to your overall debt and making it harder to pay off. It's important to prioritize paying off your loan as quickly as possible in order to save money on interest fees.

What are the different ways to borrow money?

Aside from knowing how to borrow money, it’s also essential to learn the different sources where you can get the money you need. Here are some of the most common ways to borrow money securely:

1. Banks

Banks are a traditional and widely trusted source for borrowing money. They offer a range of loan products, including personal loans, home loans, and car loans. However, banks often require a good credit score and thorough documentation, making this a more suitable option for those with established credit histories.

2. Credit Unions

Credit unions function similarly to banks but are member-owned and often offer more competitive interest rates. They provide personal loans, car loans, and other types of credit with low fees and personalized service.

Credit unions also have flexible lending criteria, making them a good option if you have a moderate credit score. Membership is usually required, but joining a credit union can be a smart move if you’re looking for better rates and terms.

3. Credit Cards

Credit cards in the Philippines are one of the most convenient ways to borrow money. They allow you to borrow up to a certain limit, which you can use for various purchases.

However, credit card interest rates can be high, especially if you only make minimum payments. While they're easily accessible and useful for short-term borrowing, it's important to use them responsibly to avoid accumulating debt.

4. Salary Loans

Salary loans, also known as payday loans, are short-term loans that are typically due on your next payday. They are relatively easy to obtain and don’t require a credit check, making them accessible for those with poor credit. However, salary loans come with high interest rates and fees, which can trap borrowers in a cycle of debt.

5. Private Lenders

Private lenders are individuals or companies that offer loans outside the traditional banking system. They may provide personal loans, business loans, or other forms of credit, often with more flexible terms and faster approval processes.

Make the right financial move

Achieve your next personal goal without worrying too much about how you can fund it. Now that you know how to make good borrowing decisions and the different ways to borrow money, all you need to do is remember these tips and you’ll be on your way to achieving your goals.

As long as you follow the advice given in this article, you can confidently take out a loan. If you plan to open a business or pursue further education, you can fund it with a Metrobank Personal Loan.